The purchase of a sports franchise is a complex process, and for a good reason. One of the reasons these transactions have so many layers has to with the fact that there are so many factors that go into determining the value of a franchise; here are some of the most notable elements.
Just how popular a team is will have a great deal of impact on the overall value of the franchise. The more popular the team, the higher it's valued and this is due to the fact that popular teams often have a higher potential for profit. Even if the franchise itself isn't' the most popular, if they have a group of team members who are popular, this will impact the overall popularity of the team.
Another important factor that goes into the valuation process is revenue. For any individual or firm looking to purchase a team, the goal is to make a return on their investment, and this can only be achieved when the team is actually making money. To determine the revenue, a valuation firm will review everything from gate sales to any media contracts the team has to see how much it brings in on a regular basis, as well as a projection of its future earnings.
A team can produce high revenue numbers, but still have a low value if its operating costs are high. For this reason, an important part of the valuation process is an evaluation of operating expenses. From mortgage payments to team member salaries to facility upkeep costs, every line of the operating budget is examined to see how the expenses of the team compare to its profits to determine how much it is worth.
The value of a team is also highly dependent on its future projections, regarding both the team and the overall league. For example, if someone is looking to purchase an arena football team, but say arena football interest has dropped more than 30% over the last five years, it's likely that the team won't be as valuable as it would have been if interest were up. Much of the same is true when it comes to the specific team. The greater the future of the team and organization look, generally, the higher its value.
These represent just a small portion of the different factors that go into a franchise valuation. A franchise valuation service, like Sports Value Consulting, LLC, can go into greater detail and discuss the various elements that come into play.